Article by Neil Parikh in Financial Chronicle, January 05, 2019
2018 was an interesting year for the markets. There were some predictable surprises as well as some unpredictable surprises, which made the markets quite volatile compared to the remarkable run of 2017.

Article by Raj Mehta in Afternoon DC, June 25, 2018
On 6th June 2018, the Monetary Policy Committee (MPC) of RBI increased the repo rate by 25 bps to 6.25% after nearly 4 years. Interestingly, the vote to hike as well as the magnitude of the hike was unanimous. In the last MPC meeting, there was only one member of the MPC who had voted FOR the rate hike.

Different channels, newspapers, websites, blogs, research reports... sure, there isn't dearth of information. While business channels and magazines have always been in overdrive, many general news channels have also jumped into the fray.

The term ‘investment’ can mean different things to different people. For instance, it could refer to time, money, effort, etc. Though it can take different forms, ‘investing’ basically involves an initial outlay with the aim of recouping more than what we have put in. Of course, not all investors succeed in achieving their objectives.

Value Investing can mean different things to different people. Value is expressed and measured in the eyes of the beholder. What may provide value to one person may not provide necessarily the same value to another.

The term 'investment' can mean different things to different people. 'Investing' involves an initial outlay with the aim of recouping more than what we have put in, at a later stage. The stock market is one such avenue for investors. While all investors want to earn huge profits, not everyone succeeds in achieving this objective. Just as in any other profession, only the cream rises to the top.

There is nothing better than watching market soar record highs for a trader. However, for a mutual fund (MF) manager, it poses a separate challenge. The S&P BSE Sensex climbed mount 30K in opening trade on Wednesday to hit a fresh record high of 30,213.72.

Every quarter, sell-side analysts embark on an activity which is quite perplexing - making and disseminating 'earnings estimates'. Every brokerage house releases such estimates for many large-cap companies (and a few small ones, too). There are a couple of points common across all quarters:

Quick question: When was the last time you woke up in the morning and felt completely certain about the way your day would pan out? Sure, you may have aimed at accomplishing a series of tasks and also meticulously planned your path. Despite this, you tacitly knew and acknowledged that there was always the possibility that things may not turn out as planned. This, however, did not paralyse you and make you sit at home.

In recent times, post-budget emotions have resembled a hangover, necessitating an 'evening-after' pill. Blue-sky (a euphemism for 'unrealistic') expectations at the start of the Hon'ble Finance Minister's speech have inevitably tapered off into a sense of ennui.

It's that time of the year again, albeit, preponed by a month this time round. If 2014 was a time when people wondered whether Narendra Modi would deliver the goods, some are touting 2017's Union Budget as the litmus test for Arun Jaitley.

Inflation is feared by democratic governments worldwide as rising prices serve as a red flag to voters. Bond bulls hate it too as rising yields lead to capital losses. But how do investors in stocks perceive inflation?

This year, February will be an important month for many Indians for two very diverse reasons. While February 14 is likely to appeal to the right side of the brain (the one dealing with emotions), February 1 will excite the left side (dealing with reasoning and analytical thought).

Tom Russo, a well known investor, talks about the need for investors as well as companies to have a capacity to suffer. This is not about deriving pleasure or satisfaction from the pain. It is about undertaking activities that are painful in the near term for longer-term gain. This is true for individuals, companies, societies and governments in fields ranging from health, business, environment, human rights, and so on.

When I began writing this article on the benefits of delaying gratification, I could not but help recollecting my childhood, when during festivals my grandmother used to strictly remind us to eat our vegetables first and then attack the sweets.

Only those people enjoy volatility in the stock markets who either have a lot of cash to deploy when the markets crash, or who are fully invested when the markets rise.But the most common response to sharp rises and declines in stock prices is a generally elevated emotional state that may lead us to act irresponsibly.

As in every profession, financial advisors, too have their own jargon. To my mind, one of the more quixotic terms they use is 'risk appetite'. I have not heard this term used very often in other contexts, for instance, in the case of a para-glider or a white water rafter, but it is commonly used while determining the asset allocation for otherwise staid clients. Of course, risk can take many forms, and financial risk is one of these. So, in that context, the term may not be misplaced. But what does it really mean?

Only those people enjoy volatility in the stock markets who either have a lot of cash to deploy when the markets crash, or who are fully invested when the markets rise. But the most common response to sharp rises and declines in stock prices is a generally elevated emotional state that may lead us to act irresponsibly.

Nowadays, I have noticed that a section of the populace is keen on bypassing advisors and undertaking the Financial Planning process themselves. This is partly due to the explosive growth of airtime and column space devoted to personal finance, and partly due to the poor experience that they or their acquaintances have had with agents masquerading as advisors.

We had a rule for 2,600 years... that a bird in the hand was worth two in the bush. These days in Europe, it’s worth 9/10ths of a bird in the bush,” said Warren Buffett at this year’s Berkshire meeting with regard to negative interest rates. “If you’re not confused, then you haven’t thought about it correctly,” Charles Munger added.

The primary market largely comprises of two segments: 1. Initial Public Offerings (IPO) 2. Follow On Public Offerings Worldwide, they are often viewed as a lottery, wherein successful allottees are able to sell their holdings at a huge premium on listing. This belief may still hold good in some countries, but in India this arbitrage has faded over time. This is due to:

William Shakespeare had said "A rose by any other name smells just as sweet". However, marketing heads of companies will disagree with Shakespeare's observation. According to them, a juicy twist to a fact helps in communicating the message better than merely conveying the bald truth. In other words, they are always attempting to frame a fact in the most effective manner. A mutual fund advertisement can state a fact in two ways:

You may remember the time when, as children, you were forced by your parents to eat your vegetables. When you quizzed them for a reason, they simply said "Well, you MUST eat them because they are good for you". Today, stockmarket 'experts' have taken the place of parents, by screaming to all within earshot that everyone's investment portfolio MUST contain equities. They lament that Indian investors do not know what is good for them. That is why, equities comprise only around four per cent of their portfolios.

MUMBAI, JULY 8: PPFAS Mutual Fund (PPFAS Asset Management Private Limited) has an unusual logo – a tortoise. Now, when you have companies talking about speed, agility, flexibility and such other fictitious attributes, it seems rather brave to opt for the logo of an amphibian that is associated with the opposite of the aforementioned qualities. But remember the old fable where the tortoise beats the more fancied hare – that the slow and steady wins the race? The logo reflects that aspiration and is meant to convey the attributes of longevity.

Financial advisors often suggest that neophyte investors invest either in large-cap stocks or large-cap mutual fund schemes. They justify this saying that these stocks / schemes are safe as many of them are 'blue-chips'. While the advice is well meaning, merely being classified as a blue-chip may not be enough to assure safety from an equity investor's point of view.

Every parent fondly looks forward to the day when children will begin earning a steady income. However, for Indian parents, it is difficult to sever the metaphorical umbilical cord even after their child secures financial independence.

Today, the word 'technology' is more synonymous with convenience and comfort rather than fear or dread. Various user-friendly applications of technology have become so ubiquitous that it is difficult to imagine life without the various gizmos that surround us. It has spread its tentacles into the arena of investments and other aspects of personal finance too. This has a few advantages:

Given the number of mutual fund schemes, choosing a suitable one is not an easy task. Often, one relies on the advice of friends or family members who have invested in mutual funds without really considering whether what is suitable for them is good for us too. While doing one’s own homework is ideal, where should one begin?

The Indian public may not be too aware of what happened in the case of Valeant Pharmaceuticals in the US. It is far removed from our day-to-day lives. However, for investors, it is an important case study and there are a lot of parallels in India too and it may be interesting to examine the events surrounding Valeant and similar companies like Turing Pharmaceuticals.

Azim Premji is a well known corporate leader and a person rated as the top philanthropist of 2015. Indeed he is such an inspiration that the previous finance minister P. Chidambaram said in his budget speech in February 2013: “I believe there is a little bit of the spirit of Mr. Azim Premji in every affluent tax payer.

Today, women are outpacing men in several areas. Surprisingly, investing is one area which still provides fertile ground for studying gender differences. On the face of it, this field should be gender agnostic as it does not involve physical exertion or spending long hours in office, both considered limitations for women. However, there are some differences in the manner in which the two genders approach investment.

When the announcement for the Mumbai–Ahmedabad “bullet train” was made in the Railway Budget of 2016, a lot of people wondered aloud whether this was the best use of money in railways and that some other projects were probably would be a better use of the money.

Here is how Vulcans* would run their banks and handle bank crises. A bank in trouble would be liquidated. All assets would be realised. Depositors would be paid from the asset realisation. If the depositors got their deposits in full, the surplus left would go to shareholders of the bank. In case of a shortfall, Deposit Insurance and Credit Guarantee Corp. would pay up to Rs.1 lakh to each depositor to cover the shortfall and the shareholders would get nothing.

Post-Budget, Finance Ministry officials have been tying themselves up in knots trying to explain what the taxation parity should be between EPF, NPS, superannuation and so on. As Winston Churchill once said, "Never let a good crisis go to waste", so we should use the current situation to look at retirement funds holistically, rather than just through the prism of taxation. The following aspects need to be examined, keeping in mind the systems in place in Organisation for Economic Co-operation and Development (OECD) nations.

Prophesying about doomsday is a serious and regular business. Various prophets of doom have forecast the end of the world many a times. For a list of past and future prophesies you can go to this website.

One swallow does not make a summer. However, is the recent tariff of ₹ 4.63 per unit of solar generated electricity determined by a reverse auction mechanism, a canary in the coal mine of thermal power? There are changes happening in the world of finance, technology, energy and transportation that could have seismic changes for a wide range of companies, sectors and countries.

There has been a minor storm brewing in the debt mutual fund space. The proximate cause for this has been a default by Amtek Auto Ltd in redeeming the bonds issued by it. This has raised numerous questions relating to the operations of mutual funds, the bond market, rating agencies and so on.

Crude oil prices have come down to around $50 a barrel, after coming close to $150 at peak levels. Shipping rates, according to some indices of shipping freight, are down by 80% from peak. Whether it is iron ore, steel, copper, coal, gold or virtually every other commodity, the steep fall in prices is quite evident.

The past few years have accorded cult status to investors such as Peter Thiel, Ram Shriram, Accel India & Tiger Global. This is because the companies they backed - Facebook, Google and Flipkart, respectively - have become household names and metonyms for the new economy.

The tributes pouring in from investors across India after the tragic demise of renowned value investor and behavioural finance guru Parag Parikh bring to light a rather sad fact about the Indian market. For investors who are keen to succeed in the stock market, there are very few domestic role models to look up to.

As many mutual fund investors must have heard, the founder and CEO of PPFAS, Parag
Parikh, passed away tragically in a car accident in the US. A true follower of the creed of value
investing, Mr Parikh was in the US to attend the annual shareholders’ meet of Warren Buffett’s Berkshire Hathaway. This was the first time he was making this investors’ pilgrimage, and sadly, it was his last.

Here is a quick arithmetic test. What is the average of the following two series of numbers: A. 40%, 50%, -60% and 65% (Answer: 23.75%), B. 20%, 15%, 17% and 20% (Answer: 18%)
This would be the normal average that one would calculate. It’s also called the arithmetic mean.

E-commerce can drive passions. Supporters think that it will change the world and that we are at just the beginning of the e-commerce trend, whereas detractors think that the business model is flawed and most sales are driven by discounts and promotions.

Still, it is probably the best single measure of where valuations stand at any given moment.” So said Warren Buffett in December of 2001, in reference to the market capitalization to gross national product ratio (he used GNP in 2001 and GDP, or gross domestic product, while giving a talk earlier in 1999).

Two dates in February are eagerly awaited by two different sets of constituents. While February 14 sets one group's heart beating, it is February 28 that quickens the pulses of the other set, viz. stock market participants.

At a time when almost all fund houses are in the race to take advantage of investors' renewed interest in equities and launch new funds, this fund house holds annual general meetings (AGMs) of investors, where it makes it a point to reiterate that it will have one equity fund.

After college, I joined an entrepreneurial course that, among other things, required me to plan a project and give a report. I chose to research and give one on Laminated Plastic Collapsible Tubes. The idea was summarily rejected by the professor as being unviable. The reason: There were many rats in India and if toothpaste was stored in such tubes, the rats would chew these. Thus, it was inconceivable that aluminum tubes could ever be substituted with plastic tubes.

Challenging the status quo of the mutual fund industry, PPFAS Mutual Fund, promoted by Parag Parikh Financial Advisory Services, held its first unit holders meet in Mumbai on 22 November 2014. PPFAS MF previously held the Annual General Meeting (AGM) of its unit holders in Chennai and Bangalore. This was as another first by the fund house in the mutual fund industry. In Mumbai, PPFAS Asset Management chairman and CEO Parag Parikh and chief investment officer and fund manager Rajeev Thakkar presented their investment philosophy to the unit holders, after which, in an elaborate question and answer session, they replied to queries from their unit holders and distributors on the rationale behind selecting various stocks for the portfolio.

The festival season started with Navratri, followed by Dussehra. Few days later, there will be Diwali—one of the brightest festivals in India. Many legends are associated with this festival. It marks the victory of Rama over Ravana; and symbolically good over evil.

Parag Parikh still remembers the bright summer weekend he spent patiently planting tiny saplings into large earthen pots at the leafy terrace garden of his Walkeshwar home. At the end of the process, pleased with his labour, the 60-year-old chairman and CEO of Parag Parikh Financial Advisory Services dragged the pots to their final spots around the tiled terrace.

Last month, capital market regulator Securities and Exchange Board of India (Sebi) said that all fund houses must put in 1% of their own money, called seed capital, subject to a maximum of ₹ 50 lakh, in all their open-ended mutual fund (MF) schemes. Existing and new funds will have to comply. Sebi wants fund houses to have their “skin in the game”; it wants to align the fund house’s interests with those of the investors. But will it work?

SEBI has recently come out with its "Long Term Policy on Mutual Funds". A lot of positive statements have been made -- such as having higher tax exemption limits for investments in mutual fund schemes and allowing EPFO to invest in mutual funds and so on.

India has been faced with periodic 'Credit Downgrade' threats from the various rating agencies, over the past two years or so. Different countries may have different (and often opposing) ideologies, economic systems and cultural/religious pursuits but if there is one thing which unites them all it is a ‘Credit Rating’ downgrade.

Inflation is feared by democratic governments worldwide as rising prices serve as a red flag to voters. Bond bulls hate it too as rising yields lead to capital losses. But how do investors in stocks perceive inflation?

If money management is a profession then the professional does what is good for the client, in the belief that doing so is advisable, both for his/her long-term success, as well as for the well being of the profession. However, if it is a business then each action of the provider will be scrutinised as to whether it makes business sense or not. Often in a business, business interests supercede the interest of clients.

The current debate in the Indian mutual fund industry is around the net worth issue with one view wanting this raised from the current Rs.10 crore and the other wanting it to stay where it is. I think we need to look at this debate through the lens of whether we consider money management as a profession or a business.

The QE taper has caused debt capital to leave emerging markets and has led to weakening of currencies and rise in interest rates. Spike in oil prices on account of Syria will also cause pain. Red tape, corruption and higher deficits on account of increased social entitlement spends are responsible for lower growth. However, the hubris of corporates in 2006-07, when there was excessive leverage and overambitious projects, is equally responsible for the pain the economy is going through.

Even for those who aver that volatility is an inherent part of stock markets, the recent stomach-churning gyrations have been a tad too much to handle. Those who gloated that they had decades of experience, suddenly appeared like novices. Media mavens desperately searched for 'experts' who could provide a few comforting words of wisdom, but unfortunately, the search for oracles proved fruitless.

At a recent mutual fund seminar, there was the usual lament about how funds are failing to gain traction among 'small investors'. While several causes were cited, they mostly boiled down to mutual funds failing to resonate or 'connect' with investors.

Every quarter, sell-side analysts embark on an activity which I find perplexing... making and disseminating ‘Earnings Estimates’. Every brokerage house, releases such estimates for many large-cap companies (and a few small companies). There are a couple of points which are common across all quarters:

For beginners, it is not easy to choose a mutual fund scheme to invest in. Even I have gone through this. I initially relied on the advice of my friends and / or family members, who have invested in mutual funds, gave. Then, I tried doing my own home work by reading relevant magazines to understand the intricacies of investing in fund schemes.

Parag Parikh’s PPFAS Mutual Fund has been started at a rather inopportune time. The stock markets are in the grip of a vicious Bear market and the common man has no appetite for stocks. Mutual Fund redemptions are at an all-time high. It is a tough environment to be in.

Assets served as the most vital aspect of business of any kinds. This demands careful management and must be well protected in order to prevent deficit or loss. But how this can be done? One thing is for sure, asset management is what you will need.

Today, the word 'technology' is more synonymous with convenience and comfort rather than fear or dread. Various user-friendly applications of technology have become so ubiquitous that it is difficult to imagine life without the various gizmos that surround us. It has spread its tentacles into the arena of investments and other aspects of personal finance too. This has a few advantages:

If you ask for a summing up of what is wrong with mutual fund investing in India, here is the list I would come up with. Investors don't invest regularly and instead put in money only when the markets are high, only to pull it out when they are low. There are too many and vaguely similar funds, sometimes even from the same fund company. And many of these funds are specialty or thematic or sector-specific funds that have been launched just to get the benefit from easy sale of the top flavour of the season.

As a general rule, Certified Financial Planners and other mutual fund advisors, desist from recommending a new fund or scheme to their clients. They prefer to opt for tried and tested schemes, mainly due to the following reasons:

A journalist called me up last week asking for my views for a story that she was working on. It dwelt upon the fact that investors were deserting mutual funds in droves as they were disillusioned by a lacklustre market. She then asked me what could mutual funds and the Regulator do to ‘attract’ investors once again.

For the past two years or so, if any retail investor asked a 'financial expert' whether this was the right time to invest in the stock market or not, the answer would invariably have been, 'Refrain for the time being and enter when there is more certainty'. Investors appear to be taking this advice rather seriously.

Three Fridays and three sets of good news - ECB President Mario Draghi's promise to buy unlimited bonds, Ben Bernanke's commitment to purchase mortgage backed securities worth $ 80 billion a month, along with diesel price hike by the Indian government and Mulayam Singh Yadav's commitment that the UPA will not be destabilised soon - has brought the smile back on stock investors' faces.

A change in any status quo is often a cause for disquiet. When that happens in the corporate sector, various stakeholders-be they employees, customers or shareholders-have to put up with a phase of uncertainty.

All parents seek to provide as much security to their children as they possibly can. That is why financial planning for children is a subject which is close to their heart. I have often come across couples who are keen to save and invest for their child's higher education and marriage right from the month he/she is born. This is a commendable thought indeed.